COMMON
STOCK PURCHASE WARRANT


 


DOCUMENT
SECURITY SYSTEM, INC. 


 


	Warrant
    Shares: 200,000	Initial
    Exercise Date: December 29, 2016


 


THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, BMI Capital Partners International
Ltd. and its permitted assigns (the “Holder”) is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after December 29, 2016 (the “Initial Exercise Date”) and on or prior to the close
of business on the three year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter,
to subscribe for and purchase from DOCUMENT SECURITY SYSTEM, INC., a New York corporation
(the “Company”), up to 200,000 shares (as subject to adjustment hereunder, the “Warrant Shares”)
of the Company’s common stock, $0.02 par value (“Common Stock”). The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).


 


Section
1.Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that
certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 29, 2016, among the Company
and the Holder.


 


Section
2.Exercise.


 


a)       Exercise
of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company)
of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within three (3) Trading Days following the date
of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice
of Exercise by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary,
the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full, in which case the Holder shall surrender this Warrant
to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company.
Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder
shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable
number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased
and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one (1) Business
Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason
of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.


 




    	 



    	 		 



    

 


b)       Exercise
Price. The exercise price per share of the Common Stock under this Warrant shall be $1.00, subject to adjustment hereunder
(the “Exercise Price”).


 


c)       Mechanics
of Exercise.


 


i.       Delivery
of Warrant Shares Upon Exercise. The Company will issue a stock certificate representing the Warrant Shares purchased hereunder
to the Holder by the date that is five (5) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise,
(B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (such date, the
“Warrant Share Delivery Date”). The Warrant Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as
of the date the Warrant has been exercised, with payment to the Company of the Exercise Price and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(c)(v) prior to the issuance of such shares, having been paid. Any certificate issued
to Holder representing Warrant Shares shall contain the restrictive legend language specified in the Purchase Agreement.


 


ii.       Delivery
of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.


 


iii.       Rescission
Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section
2(c)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.


 


iv.       No
Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.


 


v.       Charges,
Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the event Warrant Shares are to be issued in a name other than the name of the
Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by
the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer
tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise.


 




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vi.       Closing
of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.


 


Section
3.Certain Adjustments.


 


a)       Stock
Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately
after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that
the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.


 


b)       Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.


 


c)       Notice
to Holder. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly
mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number
of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.


 


Section
4.Transfer of Warrant.


 


a)       Transferability.
This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment
of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient
to pay any transfer taxes payable upon the making of such transfer, provided, however, that such transfer is in compliance with
all applicable federal and state securities laws. Upon such surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant
not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be
exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.


 




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b)       New
Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of
the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial
issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant
thereto.


 


c)       Warrant
Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.


 


Section
5.Miscellaneous.


 


a)       No
Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(c)(i).


 


b)       Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case
of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.


 


c)       Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.


 




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d)       Authorized
Shares.


 


The
Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect
in full the exercise of this Warrant, in addition to such other remedies as shall be available to the Holder, the Company will
promptly take such corporate action as may, in the opinion of its counsel, be necessary to increase the number of authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including without limitation,
using its best efforts to obtain the requisite shareholder approval necessary to increase the number of authorized shares of Common
Stock. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the necessary Warrant Shares upon the exercise of the
purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading
Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and
payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free
from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).


 


e)       Jurisdiction.
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions
contemplated by this Warrant (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the State of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the State
of New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of this Warrant), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect
for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted
by law. If either party shall commence an action, suit or proceeding to enforce any provisions of this Warrant, then, the prevailing
party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.


 


f)       Nonwaiver
and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision
of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant,
which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings,
incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.


 




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g)       Notices.
Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered
in accordance with the notice provisions of the Purchase Agreement.


 


h)       Limitation
of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.


 


i)       Remedies.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.


 


j)       Successors
and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.


 


k)       Amendment.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.


 


l)       Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.


 


m)       Headings.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.


 


********************


 


(Signature
Page Follows)


 




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IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its authorized signatory as of December 29, 2016.


 


	 	DOCUMENT SECURITY SYSTEMS, INC.
	 	 	 
	 	By: 	 
	 	Name: 	Jeffrey Ronaldi
    
	 	Title:	 Chief Executive
    Officer


 


[Signature Page to Common Stock Purchase Warrant]


 




    	 



    	 		 



    

 


NOTICE
OF EXERCISE


 


To:DOCUMENT
SECURITY SYSTEMS, INC. 


 


(1)              
The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer
taxes, if any. 


 


Payment
in the form of lawful money of the United States in the amount of $__________ in payment of the aggregate Exercise Price will
be made by means of:


 


______
Check


 


______
Wire transfer


 


(2)              
Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:


 





 



 


[SIGNATURE
OF HOLDER]


 


	Name:
    	BMI
    Capital Partners International Ltd.	 
	 	 	 
	By:	 	 
	 	 	 
	Signature	 	 
	 	 	 
	Title	 	 
	 	 	 
	Date	 	 


 




    	 



    	 		 



    

 


ASSIGNMENT
FORM


 


(To
assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)


 


FOR
VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned
to


 


	 	  whose address
    is
	 
	 


 


Dated______________________,    _____________


 


	 	Holder’s
    Signature:  	 
	 	Holder’s
    Address  	 
	 	 	 


 


	Signature
    Guaranteed:	 


 


NOTE:
The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration
or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.